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Inside and Outside Money, with an Application to the Russian Virtual Economy

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Author Info

  • Svetlana Boyarchenko

    (The University of Texas at Austin)

  • Sergei Levendorskii

    (The University of Texas at Austin)

Abstract

We analyze the endogenous appearance of money substitutes, their interaction with outside money, and resulting distortions in the price system of an economy with large monopolies and wide-spread informal networks. The economy consists of productive, individually optimizing agents and less productive colluding agents who issue universally acceptable money substitutes. We distinguish equilibria by types of exchange both between agents of one type and between those of different types and show that for small trading frictions, only three types of equilibria can be sustained. A novelty of the analysis is that the agents issuing money substitutes survive by their collusion.

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File URL: http://128.118.178.162/eps/mac/papers/0405/0405009.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0405009.

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Length: 22 pages
Date of creation: 11 May 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0405009

Note: Type of Document - pdf; pages: 22
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Web page: http://128.118.178.162

Related research

Keywords: money substitutes; search; collusion; trading frictions.;

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References

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  1. Cavalcanti, Ricardo de O & Wallace, Neil, 1999. "Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 443-57, August.
  2. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  3. Williamson, S.D., 1998. "Private Money," Working Papers 98-09, University of Iowa, Department of Economics.
  4. Ricardo de O. Cavalcanti & Andres Erosa, 1998. "Private Money And Reserve Management In A Random Matching Model," Macroeconomics 9802010, EconWPA.
  5. Blanchard, O & Kremer, M, 1996. "Disorganization," Working papers 96-30, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Neil Wallace & Ruilin Zhou, 1996. "A model of a currency shortage," Working Papers 569, Federal Reserve Bank of Minneapolis.
  7. Shirley J Gedeon, 2000. "Money Unmade: Barter and the Fate of Russian Capitalism," Comparative Economic Studies, Palgrave Macmillan, vol. 42(2), pages 113-114, July.
  8. Burdett, Kenneth & Trejos, Alberto & Wright, Randall, 2001. "Cigarette Money," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 117-142, July.
  9. Clifford Gaddy & Barry W. Ickes, 1998. "To Restructure or Not to Restructure: Informal Activities and Enterprise Behavior in Transition," William Davidson Institute Working Papers Series 134, William Davidson Institute at the University of Michigan.
  10. S.I. Boyarchenko & S.Z. Levendorskii, 2000. "Search-Money-and-Barter Models of Financial Stabilization," William Davidson Institute Working Papers Series 332, William Davidson Institute at the University of Michigan.
  11. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January.
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